Emerging companies targets slashed 12pc

The global economic turmoil and the string of profit warnings from small companies has prompted at least one broker to rebase its view on the sector, and more are likely to follow suit.

This means investors are probably in for a volatile ride early in the new year, with most market watchers expecting the market to make decent gains only in the later half of 2012.

Goldman Sachs has slashed its price targets across its emerging companies universe by an average of 12 per cent after it made significant downgrades in its 2012 economic forecast for Europe, Australia and New Zealand.

The broker believes that the benchmark S&P/ASX 200 Index will trade around 4100 by June before rallying to 4500 by the year’s end. The index is currently trading around 4131.

Junior companies could lag as their larger counterparts appear better placed to outperform over the short to medium term.

Emerging company stocks under Goldman Sachs’s coverage that have suffered the biggest cut to their price target – in excess of 20 per cent – include adventure gear retailer
Kathmandu Holdings
, as its price target was lowered by 41 per cent to $1.50, footwear retailer
RCG Corporation
, by 37 per cent to 38¢, and recruitment solutions firm
Talent2 International
, by 28 per cent to 58¢.

While all three have recently issued disappointing trading updates, only RCG got its recommendation downgraded from a “buy" to “hold" by the broker.

The group, which owns The Athlete’s Foot and Shoe Superstore chains, has good longer-term growth prospects and is trading on undemanding valuation, but poor consumer spending patterns and strong competition are likely to more than offset any positives in the near term.

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RCG’s share price fell 2.9 per cent to 34¢ in lunch time trade – its lowest level since June 2009. Goldman Sachs has kept its “buy" rating on Kathmandu and “hold" call on Talent2.

On the flip side, Goldman Sachs lifted its price target on waste and recycling solutions company
Transpacific Industries Group
by 2 per cent to 97¢ as it believes the stock should be trading at a 10 per cent premium to ASX Small Industrials Index given that it has a more defensive revenue base.

The stock was trading flat in the last 30 minutes of trade at 80.5¢ and has bounced by 73.5 per cent since it hit a record low of around 46¢ back in early October. Goldman Sachs has reiterated its “buy" recommendation on Transpacific Industries.